Market efficiency and volatility persistence of cryptocurrency during pre‐ and post‐crash periods of Bitcoin: Evidence based on fractional integration

Abstract

This paper investigates both market efficiency and volatility persistence in 12 cryptocurrencies during pre-crash and post-crash periods. We were motivated by the erroneous belief of some authors that driving currency, Bitcoin is inefficient. By considering robust fractional integration methods in linear and nonlinear set up, we found that markets of Bitcoin and most altcoins considered in our samples can be dubbed as efficient, and these are highly volatile particularly in the post-crash sample that we are now. These volatilities will then persist for shorter period than in the pre-crash period. Our work therefore renders important information to cryptocurrency market participants and portfolio managers.

Volatility persistence in cryptocurrency markets under structural breaks

“…This is denoted the Adaptive Market Hypothesis (AMH). Urquhart and Hudson (2013), , Noda (2016), Ito et al (2016), Urquhart and McGroarty (2016) and Yaya et al (2019) investigates the market efficiency with methods derived with the AMH. Furthermore, Chu et al (2019) investigates the AMH for the two largest cryptocurrencies, and found evidence that supports the hypothesis of a time varying market efficiency.…”

An Exploratory Approach to the Adoption Process of Bitcoin by Business Executives

“…Blockchain is a new digital technology which could change the way industries and organizations around the world are organized and structured [1]. Blockchain has prompted many companies and organizations, as well as political powers, to rethink the marketing strategies and tactics for their products and services [2,3]. Blockchain technology came about with the creation of the cryptocurrency known as Bitcoin.…”

“…Bitcoin is a cryptocurrency based on a peer-to-peer payment system [4]. Although, in recent years, some publications have addressed Bitcoin and blockchain as one in the same technology, the fact is that Bitcoin is merely one application of the emerging digital technology known as blockchain [3,[5][6][7].…”

“…Figure 1 shows the Bitcoin value since April 2020 (X-axis) and the average value in dollars (Y-axis) as well as its evolution over time. Even so, Bitcoins are still a safe bet as an exchange currency in e-commerce and business, not only because of their electronic nature and potential privacy, but because blockchain technology is the basis of their production and use [3,9].…”

Can wavelets produce a clearer picture of weak-form market efficiency in Bitcoin?

“…The general consensus derived from literature is that Bitcoin is only market (in)efficient over certain time periods (i.e. time-varying efficiency), as insinuated by the adaptive market hypothesis (AMH) of Lo ( 2004 ), although these studies identify different time periods or structural break points when the Bitcoin market switches from being inefficient to market efficient or vice versa (Urquhart, 2016 ; Nadarajah & Chu, 2017 ; Bariviera et al, 2017 ; Bariviera, 2017 ; Tiwari et al, 2018 ; Jiang et al, 2018 , Alvarez-Ramirez et al, 2018 ; Zhang et al, 2018 ; Vidal-Tomas et al, 2018 ; Khuntia & Pattanayak 2018 ; Aggarwal, 2019 ; Chu et al, 2019 ; Sensoy, 2019 ; Tran & Leirvik, 2020 ; Vidal-Tomas, 2020 ; Wu & Chen, 2020 ; Lopez-Martin et al, 2021 ; Manahov & Urquhart, 2021 ; Yaya et al, 2021 ). There also exists a smaller and more recent strand of studies (Corbet & Paraskei, 2020 ; Naeem et al, 2021 ) which identify a different mechanism for asymmetric behavior in the Bitcoin returns in which market efficiency switches between bear and bulls markets.…”